The question of deregulation


What might happen if supermarkets enter the pharmacy industry? asks Michael Rhodes

Much debate has arisen about what happens next in the pharmacy industry and regrettably, some think the current arrangements should remain.

Instead of contributing to the debate they’ve personally attacked or tried to attack those who have.

We’ve called for substantial change and said the CPA arrangement was a dinosaur of market inefficiency.

And we’ve stated there are two elephants in the room; 1) poor pharmacist pay and 2) calling for the entry of supermarkets be allowed.

We envision a future, based on our research when supermarkets do enter the pharmacy industry and in doing so these are our 15 major predictions.

  1. CPAs and location rules will be scrapped. They restrict supply and access to medicines at the expense of the elderly and concession card holders who generate 80% of dispensed volume.
  2. The buy price of prescription medicines should fall for everybody, facilitated by the negotiating strength of the supermarket chains and the ability to source medicines both locally and internationally, thus increasing buyer power.
  3. Supermarkets should lead technology innovation in partnership with government because they have the scale and track record to do so. This will include digitising the consultation to collection process as well as driving for transparent innovation in supply chain efficiency.
  4. Supermarkets will have at their core, data transparency for government.
  5. The AHI fee reimbursement for supermarkets may be less than that for community pharmacies because they already have fixed cost infrastructure they can build upon.
  6. Demand for pharmacists will definitely increase and so will their salaries. Supermarkets will be at the forefront of ensuring pharmacists are paid what they’re worth.
  7. In-store pharmacists will be able to focus on dispensing and services and not be consumed with companion sales activities. They won’t have to be as there is already enough traffic driving these sales.
  8. Supermarkets will bring an incremental 4.1 million hours of opening time to the industry in over 1000 additional locations and we believe this is conservative.
  9. The CSO provision in CPAs could be removed, with funds diverted to innovation that delivers efficiency, access, transparency and consumer value.
  10. As a trade-off for supermarket entry, community pharmacies as we know them will allow for the co-location of GP services in their premises, allowing for two streams of revenue to absorb fixed costs, making good community pharmacies even stronger.
  11. Loss making community pharmacies will gradually cease to exist, because they will fail anyway. Government will no longer fund loss making businesses.
  12. Rural access to medicines should increase due to supermarket penetration and supermarkets nationally will be storage hubs for high cost and specialised medicines thus ensuring all consumers in all locations benefit from all medicine access.
  13. Working in partnership with the government a medicines pricing authority would be set up to assist all buyers of PBS medicines so that international best and lowest price will be achieved.
  14. Convenience will trump loyalty in many purchasing decisions and major discount chains will face pressure to compete effectively against supermarkets’ ability to be price competitive and innovative. Mid-tier and service-centric pharmacies will prevail particularly on the back of allowing GPs to be co-located within pharmacy premises.
  15. It will take five years for the supermarket industry to fully ramp up.

Some will fear, while others will embrace, supermarket entry from whatever frame of reference they have.

For us, based on our research there is no doubt it will bring substantial consumer benefits, societal value and increases in pharmacist remuneration.   

Please comment below. But, before you do we ask you to read our two reports (Part 1 and Part 2), our response (Part2a) to the King Review as well as the interim King Review itself to be fully informed. They are most worthwhile and provide the necessary context and research for these predictions.

Michael Rhodes is a management consultant and director of Rhodes Management.

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